Good morning. My name is Brook, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Avon's Fourth Quarter and Full Year 2011 Earnings Conference Call. [Operator Instructions] I'll now turn the conference over to Amy Chasen, Group Vice President, Investor Relation. Ms. Chasen, you may begin your conference.

Amy Low Chasen

Thank you. Thank you for joining us this morning. With me on the call are Andrea Jung, Avon's Chairman and CEO; and Kimberly Ross, Executive Vice President and CFO. Today, we're going to spend our time discussing topics we believe are most top of mind. Andrea will start with an update on our business review and some perspective on 2012.

Kimberly will then discuss her first impressions and her key areas of focus. We will not be reviewing the quarter or the year in detail but instead have posted relevant data in a deck on the Investor Relations section of our website, and we'll be happy to answer your questions in the Q&A session later.

With that, I refer you to the cautionary statement in today's earnings release, as well as to our non-GAAP reconciliation, which is available on the Investor Relations section of our website. As usual, on the call, we will focus on these adjusted non-GAAP financial measures.

I'll now hand the call over to Andrea.

Andrea Jung

Thanks, Amy. Good morning, everybody. With me on the call is Kimberly Ross, who I'm very pleased is here today to share her first thoughts and observations, as well as our priorities for 2012. As all of you know, Kimberly joined Avon at the beginning of December from Ahold. Many of the business challenges she successfully dealt with there have application to Avon, and I have no doubt in the short time we've already worked together that her experiences will be hugely beneficial to address the opportunities for improvement here at Avon. So I know you'll join me in welcoming her to the company and to this call.

Let me just begin with a quick comment on leadership transition since I haven't spoken to you live since my announcement last December. This is a time of tremendous change for the company, and my critical priority is providing stability and day-to-day leadership as we continue to motivate and focus our 40,000 associates and our millions of representatives. Their full engagement is essential at this juncture, and I'm highly encouraged by the collective sense of urgency and commitment in every market around the Avon world as we keep the entire organization focused on reaccelerating growth and getting this business back on track.

The CEO search is underway. And in the interim, we continue to aggressively drive the end-to-end operational and financial review of the business. As a reminder, we began a full deep dive assessment in December, and that major work continues with the appropriate speed, rigor and strong external support. Kimberly and I will share a little insight where we're able to at this juncture, but as we said in the press release this morning, I have made the obvious decision to delay the review with all of you. It clearly makes sense to wait until a new CEO is on board and takes the appropriate time before sharing longer-term financial and operating objectives for 2013 and beyond.

In the meantime, my main message is that the organization is not standing still during this transition period. Teams are moving forward and taking action where it makes full sense and thoughtfully tabling others where we should definitely wait. While I am deferring decisions that have strategic impact for the longer term, we are making decisions that are necessary to keep the business recovery moving forward.

So an example of an organizational decision I will defer, whether or not to appoint a Chief Operating Officer, obviously important to wait and determine with the new CEO, given his or her strengths and operating philosophy. On the other hand, the biggest example of actions we will move forward with center around costs. Kimberly and team are intensely focused on identifying cost reduction opportunities so that we can execute as soon as possible. We are close to completing the first phase of identifying cost opportunities focused on headcount, as well as non-headcount areas, and we'll share early thoughts on this.

In terms of 2012 and how we are operating the business in the near term, our priorities are improving top line performance, cost management and cash generation. After a challenging 2011 where full year revenues were up 1% in constant dollars, the priority is restoring revenue growth. Direct selling is a momentum business. However, sustainable growth will take time, and there are still factors of macroeconomic weakness and internal volatility over the next several quarters.

The negative impact of commodities, foreign exchange and wage inflation will also continue to pressure results. In a year of transition, therefore, we're not planning for margin recovery in 2012. In terms of cash generation, we continue to focus on working capital improvement. And as you read this morning, we announced the dividend for 2012, which maintains the current level at $0.92.

With that overall perspective, let me comment briefly on the status of our key geographies. In Brazil, results in the last quarter remained pressured as the combination of slowing Beauty category market growth and continued internal service challenges impacted performance. Going into 2012, systems issues identified around the ERP implementation are stabilized. And sustainability of supply and demand planning is now the important focus of the team going forward, along with reengaging representative morale and energy. The revenue performance may continue to be spotty in the near term as we work to drive sustained improvement in service and sales representative engagement, and it will take some time to regain share. However, having made the necessary infrastructure investments and changes in 2011 to support future business expansion, our #1 priority in 2012 is to restore Brazil's growth and operating performance as we move through this year.

Last week, we announced new General Manager in Brazil as our previous Head of Brazil will be leaving after 30 years of service. Effective March 1, David Layer will assume the role. David is an Avon direct sales veteran and one of the company's most experienced general managers with significant operating experience in Latin America. Most recently, he has led our business in Mexico where we have delivered our third year of sustained sales and margin turnaround and another quarter of double-digit strong share gain in growth.

In addition, Fernando Acosta, Avon's new Head of Latin America has been on board since early December. Like Kimberly, Fernando has hit the ground running, and he has been in Brazil several times already in the last 60 days. Together, Fernando and David will be completely focused on driving performance improvements in the following ways.

From a field perspective, the first priority for 2012 in Brazil is to ensure sustainable, stabilized service and reignite representative engagements. In this high-touch direct selling model, Brazil's field leadership continues to maintain very close personal contact with our top sellers. In the first half of 2012, this will be supplemented with additional meetings to touch 40,000 top sellers and give them previews of our major upcoming product launches.

To capitalize on the strong market growth in the northern regions of Brazil, we are adding a sizable number of new zones to maximize penetration. In terms of incremental category focus, we are aggressively reinforcing the fragrance category with significant portfolio additions specifically tailored to the unique consumer preferences in this market. In color cosmetics, we will build on our #1 leading share position with a major launch of our value brand this summer. And in skincare, we are recalibrating pricing across all tiers and plan a major launch of Genics in the spring.

At the same time, beyond these immediate steps, the new team is evaluating Avon Brazil's longer-term growth opportunities as a key part of the company's operational review. On the consumer front, this includes an assessment of Avon's brand equity, the evaluation of a more Brazil-centric product development approach and a segmented go-to-market model. From a channel standpoint, we're taking a bold look at opportunities to accelerate our service model and Representative Value Proposition in this highly competitive market, a reminder that Brazil, unlike Mexico, has not yet implemented Avon's multi-level sales leadership model. David Layer's experience in Mexico will be important here as we carefully evaluate the opportunity. And importantly, we are stress testing Avon's growth investment equation for Brazil and the cost to compete going forward.

In Russia, fourth quarter performance was in part challenged by volatile Beauty market condition and aggressive competitive pricing environment, which negatively impacted our representative recruiting and activity early in the quarter. In response, we made adjustments to our customer and representative playbook and began to see improvements in field growth as we exited the year. Though market data is not yet available for fourth quarter, year-to-date, revenue declines among top Beauty players led us to believe that macro factors have been a part of Avon Russia's 2011 slowdown.

Our 2012 priorities are to drive order growth through a comprehensive recruiting and activity drive, which will be supported by TV and digital advertising. Having said that, as we look ahead, validating Russia's longer term competitive position is a key focal area for the operational review. We are conducting an in-depth study of external market and channel growth potential, a current assessment of Avon's product and brand relevance in this market, particularly in skincare, and an evaluation of our sales leadership compensation model and its impact in the last few years.

In the United States, the recalibration of our product mix in brochure merchandising offers is working and succeeded in stemming the average order decline experienced in the earlier part of 2011. Average order, which was negative through the third quarter, was up low single digits in Q4. Demand for the Christmas holiday offers was very strong, in fact, stronger than we anticipated, although we did not chase sales as we eased back into these categories. In addition, the focus on value Beauty offers was successful. And in the fourth quarter, we grew mass-market Beauty share for the first time in over 3 years in the U.S. So the strategies that drove average order improvements are aggressively planned throughout 2012. There is a significantly increased number of smart-value Beauty products flowed across the year and selective giftable Beauty and non-Beauty offers have been added around key holiday giving events like Easter, Mother's Day and Father's Day, which were essentially absent in last year's brochure offers.

Importantly, you are all aware that One Simple Sales Model, the Avon U.S. field transformation, is being implemented as we speak. Throughout the fourth quarter, notifications to all district managers were completed. The western half of the United States will complete the redistricting in March and the balance of the country by June. We have appropriately planned for volatility, given the magnitude of the change as we reduced approximately 500 districts. That said, Jorge Martinez-Quiroga and the team are pleased that the early days seem manageable, and the execution of the change is being handled extremely well in the field.

After we moved past this period of change in the first half, all focus and reinvestment centers around driving the success of the company's enhanced multilevel sales leadership model, with increased compensation opportunity for upline representative and maximizing the redistricting were consumer segments, for instance, Hispanic and African-American populations, are much better served given the new configuration.

Having said that, beyond these 2012 initiatives and the One Simple Sales Model implementation designed to stabilize the U.S. business, this market is obviously key in the overall corporate, operational and financial review. A comprehensive relook encompasses Avon's consumer and brand relevance, the health of the direct selling channel in this market and the specific competitiveness of Avon's channel offer within that.

At an even faster pace, we're identifying the cost decisions required to return Avon U.S. to acceptable margin and cash contribution. As a final comment, on the North America segment, you read that we took a noncash impairment charge related to the acquisition of Silpada. The accounting charge to goodwill and intangible assets was driven by revaluing revenue and income projections given the unanticipated significant rise in silver prices since the acquisition and the negative impact on revenues and margins.

Our operational focus is to continue to improve product assortment, geographic coverage and representative activity and stay the course through this tough commodity environment as this is an attractive direct selling business that should deliver good growth, profit margin and domestic cash flow.

Finally, in terms of the internal investigation, an FD matter, our priority continues to be to try and move these matters forward. While we're unable to predict the duration scope or consequences, we continue to cooperate with the government in an effort to work towards resolving these matters.

So that's a high-level perspective on 2012 and our near-term priorities before a new CEO comes on board. I continue to believe that despite our current challenges, Avon is a unique company with strong growth opportunities. And I look forward to continuing to offer my full support to the CEO, the company and the board.

And with that, I'll turn it over to Kimberly.

Kimberly A. Ross

Thank you, Andrea. It's a pleasure for me to join today's call for the first time as CFO of this great company. My remarks this morning will be lengthier than normal, so I may share some of my initial impressions after 10 weeks on the job. Since joining Avon, I've had the opportunity to meet many associates, visit our largest market, Brazil, and begin to identify our strengths, as well as some of our challenges.

Some of these challenges have been self-inflicted and have been well-documented by our management team on previous calls and meetings. Addressing the issues we face requires us to take a fresh appraisal of what we have that works well and what we need to adapt and revamp so we can achieve our full strategic and financial potential.

The challenges are such that progress will be measured in quarters, not months. However, what I've seen so far gives me the confidence that these are fixable issues. With the right analytics, execution and top to bottom organizational engagement, I am certain we can win over time. With that said, it may be helpful if I share some of my first thoughts with you.

We need to improve operational excellence in the following areas: first, service. We must continue to improve our service levels so that we can get all of the right products to the representatives when promised. And this cannot be done at the expense of inventory levels. The second is forecasting. We must improve forecasting to optimize the amount of raw materials purchased, the amount of inventories produced and maintained and the financial results to be achieved. Also, our systems, processes and skills have not consistently kept up with the rapid growth in our international markets. We've witnessed this in Brazil and have already begun working to improve in this area to avoid similar issues in other fast-growing markets. I believe all of these factors have contributed to our volatile financial and operational results. And looking forward, if we can improve our flexibility and time to market, there's even a bigger opportunity for efficiency, customer satisfaction and improved working capital.

In addition to these operational areas, I see room for cost savings, and we must improve our cash flow, which I will speak more about shortly. These are not necessarily new issues, and part of addressing them must come from how we work. I strongly believe we must instill a stronger culture of ownership and accountability by improving clarity around roles and responsibilities. We also need to continue to work on enhancing our processes and procedures.

Additionally, I think it is important that we make any changes in the context of who we are. It strikes me the more I learn that we cannot consider ourselves a traditional CPG company nor do we face the same issues as our smaller direct selling peers. Given our scale, channel strength and vertical integration, we must make sure that the changes we are making reflect our unique nature. For example, and different than a traditional retailer or CPG company, we reset our store every 2 to 3 weeks, which requires us to have flexibility in manufacturing and inventory flow that many of our global Beauty peers don't have.

On balance, I feel that the company's brand, geography, channel and category gives us built-in strategic advantages. We are in the right markets for growth. We have enthusiastic, knowledgeable, dedicated associates, and the energy and commitment of the representatives is second to none. I have been inspired by what I have seen and heard when visiting our operations and talking to our representatives and our customers. Our focus now is on how to best capitalize on these strengths to produce results that reward our shareholders on a consistent and sustainable basis.

So what are we doing? Andrea already gave you an update on our business review and indicated that we are deferring our update on this process until both I and a new CEO have had time to study the business and develop our thoughts. That said, let me be clear. We're not standing still. I am helping drive the business review, and I have seen obvious operational and cost-cutting opportunities that we can realize in the short and medium term. We are taking action to get these costs, decrease decision-making churn and instill a culture where every penny counts. We are confident that these are the right actions irrespective of strategic decisions made in the future. In addition to immediate actions on cost, we are both continuing with the diagnostic process while identifying the core competencies that will lead Avon over time. We are focusing on 3 key areas of revenue, cost structure and cash generation.

Andrea talked a bit about what we are evaluating in terms of revenue in our major markets. I would like to take the next few minutes to share some thoughts on 2 remaining key areas that are of utmost priority, costs and cash. Costs have increased in the organization, and we continued to face wage and commodity inflation, as well as foreign exchange pressures. Thus, we must decrease costs to remain competitive. We have teams examining each functional area. We are currently focused on cost saving areas we refer to as tactical, which is to say savings that can be accomplished in the near term and are not dependent on the long-term strategy of the company.

The 2 areas of opportunities I see so far are in the areas of headcount and indirect spend. First, headcount. As the business has continued to evolve, we have opportunities to streamline processes and eliminate duplication that will allow us to do the work with fewer people and enhanced accountability and speed. While these reductions are not expected to be of the size and magnitude of those seen in the past, I see some immediate and medium-term opportunities to reduce headcount and corporate costs. We will start acting quickly on the immediate opportunities. And as part of our review process, we will validate and quantify the amount of any medium-term opportunity. There could be charges associated with any reductions as early as the first quarter, and we will give you more clarity as we go. Second, indirect spend. Examples include professional fees, print and paper and corporate offices. I would note that while each of these examples may be small individually, in aggregate, these savings can be significant. The larger point is that we will leave no stone unturned in the process to get costs down.

Turning now to our cash. Cash generation is a top priority and a major focus for me. First, we are actively addressing how we can improve cash flow. Reducing costs, improving operational performance and overall improvements in areas of working capital will lead to enhanced cash flow. In order to improve working capital, we need to address underlying operational issues and return to growth. These require operational changes that are being identified as part of the bigger diagnostic process. Tying back to my earlier comments, as an example, improving our forecasting abilities will increase efficiency and raw material purchases, and faster time-to-market will reduce our finished good balances. In addition, Fashion & Home is an area for significant improvement in inventory management. As these are not necessarily quick fixes, improvement will take time, but I do think we have an opportunity here.

Now moving on to our dividend, which has been a topic of much discussion. We understand the great value shareholders place on the dividend and recognize that its sustainability and consistency lies in paying the dividend with the P&L, not the balance sheet. After careful consideration, we are maintaining our dividend at $0.92 per share for 2012, which is approximately $400 million. Let me give you some additional color on our decision.

In 2011, we generated about $650 million of cash flow from operations, which included approximately $100 million of cash outs in 2011 that will not take place in 2012, primarily, higher contributions to the pension fund and payment of long-term incentive plan and bonuses. Even if you were to assume no growth in our adjusted net income in 2012, and CapEx, which should be flat, we would generate sufficient cash to pay the dividend.

We have also made the decision not to definitely reinvest current 2012 foreign earnings. This will give us access to cash flow generated from our business overseas. As a result, we expect our 2012 effective tax rate to be in the range of approximately 35% to 36%, excluding any discrete items. I would note that the incremental taxes will be noncash as we will be utilizing some of our foreign tax credit. So that is how we're thinking about 2012. We will continue to review the dividend strategy for 2013 and beyond in conjunction with the long-range business review and a new CEO.

Now I'd like to briefly discuss our perspective for 2012. 2012 is a transition year, and we're not providing a specific outlook. But I want to share some color on the year. As Andrea said, our priorities include improving top line performance, cost management and cash generation. In terms of margins, we don't expect recovery this year. The macroeconomic environment remains volatile. And as with many other global consumer companies, we expect continued headwinds from commodities, foreign exchange and wage inflation over the year.

Additionally, you should note that our margins early in the year will be impacted by investments in key markets. In Brazil, we are spending to reengage our representative in an effort to improve satisfaction, and we are restoring our advertising spend in this market as well. In the U.S., we continue to invest as we implement our One Simple Sales Model strategy.

While I know there is a broad desire for additional information, including quantification of our business opportunities and targets and how we will execute against them, from my past experience, I have learned not to make any commitments until I am fully confident that we can deliver on our promises.

In summary, we have a lot of work to do, and we are moving forward with urgency. From what I have seen so far, I am certain that Avon's unique competitive position will continue to create an advantage global platform on which this strong brand can succeed. I have been most impressed by the commitment and desire of the entire organization to improve our prospects, and I look forward to working with our team to do so. I also look forward to developing a dialogue with all of you as we take the appropriate steps to restore Avon to sustainable, profitable growth.

With that said, let me hand it over for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Chris Ferrara.

Christopher Ferrara - BofA Merrill Lynch, Research Division

It's Bank of America. Andrea, I guess the fact that you're staying on as Chairman even after you hire a new CEO, I guess it’s raised some concern out in the marketplace that the new CEO would have or would or wouldn't have the autonomy that a typical new CEO would have coming into a business, especially when you're in a turnaround situation like you are. I was just wondering if you can just give a little bit of color into decision process in staying on as Chairman. And then also give us a little comfort that a new person will have the latitude to do what they want and to break some glass, so to speak, make some changes that were put into place by the previous management team.

Andrea Jung

Yes. I think -- I mean, there's just -- to be very clear, the new CEO will have absolute autonomy to find his or her strategic and operational priorities for the company, to set the targets and to break the glass that needs to be broken in the company. I think this is an opportunity with my commitment to support the new CEO, the board and the company, to provide continuity and with bold changes at the same time and to make sure that the transition with any understanding of direct sales in the Avon business is there. But he or she will absolutely have full autonomy to run the business.

Christopher Ferrara - BofA Merrill Lynch, Research Division

And just as a follow-up, is there any -- has there been an issue in recruitment that you guys are already undertaking basically a strategic review of the business before you even have the new person in their seat. In other words, I mean, I guess, is there any concern internally that you would look at this as a potential new candidate as more of the same going forward, and they're kind of married to the conclusions that you guys draw over the next couple of months depending on how long this CEO search drags out?

Andrea Jung

I think a couple of you heard from Kimberly and myself that we've been very, very thoughtful in making sure that any decisions that we feel, were we to be in the new CEO's chair, could be reversed or would have strategic implication that those would be things, I think, that both of us said we should table. But the more tactical and obvious ones that are important, especially right now, just to commit to continue the business recovery are the ones that we'll lean forward on.

Operator

Your next question comes from Dara Mohsenian.

Dara W. Mohsenian - Morgan Stanley, Research Division

Morgan Stanley. So Andrea, the Active Rep change in the quarter was the worst we've seen in more than a decade. Can you just give us a sense of if you think the supply chain issues in Brazil are causing a lingering morale impact for reps in Brazil and if you're seeing any signs of improvement there so far this year? And then also, just given some of the issues at the corporate level, do you think rep morale is also suffering on a global basis here?

Andrea Jung

Well, just on that -- let me just start. I think that the deceleration in the Active Rep growth was primarily from Brazil and Russia for different reasons. And yes, certainly, activity was pressured in Brazil. The number of representatives is still very high, but activity was pressured due to the service challenges and the continued service challenges. The systems challenges that were created by ERP are stabilized as we exited the year. And so as I said, all focus now is just on sustaining service recovery and engaging our representatives. In Russia, I think a lot of it was about tough macros pressuring also representative activity.

Dara W. Mohsenian - Morgan Stanley, Research Division

Okay. And outside of those regions, rep morale is a big concern?

Andrea Jung

Well, rep morale, I think, continues to be very lengthened and high where -- again, service is good, where especially if you just take a look at some of the changes that we're making in the United States, I mean, we're seeing growth in the President's Club or top sellers in this cycle. And so there are some positive signs as it relates to some of the initiatives that we're taking.

Dara W. Mohsenian - Morgan Stanley, Research Division

Okay. And then just for clarity, the plans to maintain the dividend, is that a firm decision at the board level or is that clearly subject to review under a new CEO and after this strategic review is complete? And it sounds like it is a firm decision at least for 2012. Is that correct?

Andrea Jung

Yes. It was reviewed with the board, and the board has approved the decision.

Dara W. Mohsenian - Morgan Stanley, Research Division

Okay. And does a new CEO have input in that? Or could that change after the strategic review or you think it's a firm decision for 2012?

Andrea Jung

I think the discussion we'll have after the strategic review, as well as the new CEO, is what should be the dividend for 2013 and going forward, because dividend discussion is clearly part of a bigger picture that needs to be taken into account with the strategy review and the input of a new CEO.

Operator

Your next question comes from Bill Schmitz.

William Schmitz - Deutsche Bank AG, Research Division

It's Deutsche Bank. Can we just drill down a little bit more on the cash flow? Because if you kind of look at the free cash flow per share, it's about $0.87, and I guess the sort of pro forma GAAP earnings are about $1.64-ish. So is there any way to kind of reconcile the difference? I know you said, call it, $75 million of pension contributions and then maybe another $35 million of LTIP. But will there be a point in time where the GAAP earnings and the free cash flow per share will start to be pretty close to each other?

Andrea Jung

I think one thing you need to take into account were the noncash items both from last year Venezuela or I should say 2010 Venezuela, as well as we had the Silpada item that took place in 2011. I'm not going to get into -- will they be equal in the future or not going forward. Cash flow is clearly going to be something that we're going to be focusing on in 2012 just to get some improvement there.

William Schmitz - Deutsche Bank AG, Research Division

Okay. I mean, but is there nothing you can provide in terms of specifics on why that delta is so wide? And then also in your sort of due diligence in the company, I mean, can you totally take restatement off the table in terms of historical financials?

Andrea Jung

A couple of things. One, if you want to dive into real detailed cash flow analysis, happy to take that offline with Amy. But I will say to your second question, like any public company, Avon is required to maintain a system and internal controls for financial reporting, as well as for control of its assets. As part of the year-end close, we assessed the effectiveness of our internal controls and found them to be effective. And like any public company, we continue to enhance our processes and procedures around this area.

William Schmitz - Deutsche Bank AG, Research Division

Okay, great. And then just lastly, what was the cash restructuring piece in the year?

Andrea Jung

I don't have that at hand, the exact cash restructuring piece. We'll get back to you with that.

William Schmitz - Deutsche Bank AG, Research Division

Okay, great. And then just a final, final, final is, where on the cash flow statement does the pension contribution and the LTIP show up?

It's Barclays Capital. There were a number of your -- the major markets that you guys usually comment on. The performance of it that were absent from the appendix today. So can you just briefly let us know, U.K., Venezuela, Turkey, I mean, things that have really moved the needle in the past, at least let us know better or worse sequentially in the fourth quarter.

Kimberly A. Ross

Yes. What we've done is, we're focusing on our 4-key markets in the release now, as well as touching on any significant items that have occurred during the quarter. In the 10-K, you will be able to see all the detail around the other markets. And so going forward, this is how we'll structure it. But again, if there's any specific items in the quarter, then we'll call those out.

Lauren R. Lieberman - Barclays Capital, Research Division

Okay. Well, I guess the follow-up was going to be and still is that just I know we're not -- trying not to focus too much on the fourth quarter, but it feels like there may have been a lot of spending put back in the business, with the goal of stabilizing the top line with not that much return. And I know absolutely it's a momentum business, and these things take time. But it would feel like there was a deceleration in major markets that were not just Russia, and that's what I was looking for some commentary on.

Andrea Jung

Let me just -- significant acceleration from 3Q to 4Q in Venezuela. U.K., and to a lesser degree, Turkey, some deceleration. I think Europe was, in general, weak, Lauren as related to a combination of tough macros in the U.K., the Fashion & Home categories. But yes, when you look at the RVP investment in the fourth quarter, it was primarily U.S. for the One Simple Sales Model and Brazil in terms of service recovery, et cetera. And those things will have a lag effect, those 2.

Lauren R. Lieberman - Barclays Capital, Research Division

Okay. You guys had mentioned that you're planning for some bumpiness as One Simple Sales Model kind of goes in, in March and June. I mean, just how much disruption are you expecting at this point? I know we talked about it. I know it was last quarter or the quarter before when I referenced that redistricting that happened in Mexico several years ago, that, that was quite disruptive. This is much, much bigger. So would that suggest that it's going to make it awfully tough to truly stabilize revenue trends in North America in 2012 with that much change coming to the field?

Andrea Jung

Well, obviously, we're assuming that there will be some volatility. This is different. It is not exactly the same as Mexico. One of the things that obviously we're encouraged by is the average order improvement over the quarter and over the campaigns. I mean, I think I mentioned that the Beauty sales in the fourth quarter looks like they gained share in that Beauty in the U.S. for the first time in over 3 years. And volumes were actually up in the United States from down in the third quarter. So some of the merchandising and product changes have definitely made a significant increase in average order change momentum. Obviously, a lot of these things are planned through the first half and hopefully will contrast some of the volatility that we see. And we'll know more about it as we through it. I think it's happening as we speak. But I do think the field leadership and our leader there, Jorge Martinez-Quiroga, are planning for volatility. But their goal obviously is to make it as least disruptive as possible with a lot of these new plans that can keep representatives engaged and help increase their average order basket through the change.

Operator

Your next question comes from Wendy Nicholson.

Wendy Nicholson - Citigroup Inc, Research Division

From Citigroup. My first question has to do with China, specifically, and whether you think you're on track. I think by 2012, you were supposed to be growing and turning a profit, if I remember correctly. So are you on track with that? And then the follow-up to that is just, broadly speaking, you're halfway through the first quarter, do you think the first quarter will see organic sales up or down?

Andrea Jung

Wendy, we're not going to talk about first quarter, but let me just say that as you remember, we said we would start to stem from the sales decline and reach a breakeven profit. That was the goal in 2011. In fact, we made a small profit in the year.

Wendy Nicholson - Citigroup Inc, Research Division

But you're giving us guidance that you're reinvesting heavily and so margins are going to be down in the first quarter, but you can't give us a sense for the timing of the payback on that in spending.

Andrea Jung

Are you talking about China?

Wendy Nicholson - Citigroup Inc, Research Division

Well no. In, yes, China specifically but then for the overall organization, so thank you for the China comment. Now my question is, globally, overall Avon, if you're spending a lot of money in the first quarter, is that going to lead to an acceleration in the sales growth?

Andrea Jung

Some of these things, to time them in terms of when there's a lag or a concurrent sales growth, I mean, a lot of the investments in One Simple Sales Model, which we saw in fourth quarter, continue until we're fully transitioned. That would be the U.S. And we continue to spend in Brazil. I think we've talked about the fact that we're restoring advertising to a higher level in the first half of the year in combination with the product pipeline, as well as the reengagement effort here with representatives and how long exactly that takes. But it is the right strategy as we stabilize services in this market.

Operator

Your next question comes from Mark Astrachan.

Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division

Stifel, Nicolaus. I guess, Kim, question on your thoughts on the cost savings and your early thoughts in being in the job for 11 weeks now. So $1.1 billion in restructuring savings or cost savings all in since 2005, I guess given what you've seen so far, a, is this an accurate reflection of the costs that have been reduced by the company? And then second, we've obviously heard about cost cutting before. No offense, but it sort of seems like cutting headcount sounds oversimplified, like why hasn't this been done before? I guess I don't understand what's different this time around and what you've seen here that maybe Chuck or some of the other executives who had looked at this in the mid-2000 they are seeing differently.

Kimberly A. Ross

Clearly, the company has been taking initiative to get costs out of the system. I think a fresh perspective is always helpful when looking at cost. I also think that cost is one of those things that you don't look at as a one-off, but it's something that needs to be looked at on an ongoing basis, especially as the business continues to change. So with that said, again, we've made changes over the years. I think we need to continue to look at additional changes. We need to make specifically in the way we work and in some of our processes. Specifically, if I look at finance, I see opportunities to be able to take it to the next level and be able to make things more efficient and effective in that area, and I see the same in other areas. So I think this is something that needs to take place. Again, we're looking at both costs that we can get at in the short term that are both people, as well as non-people cost in this. And then we'll also take a look more at the medium-term, which again may involve doing significant changes to processes or how we organize some departments. And those are something that will take a bit more time to implement.

Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division

So on the first part, the $1.1 billion in savings out of the business since 2005, is that accurate? And where has that money gone?

Kimberly A. Ross

My focus is -- going forward, I obviously wasn't here in the past. So my focus is on what are we going to do going forward.

Operator

Your next question comes from Ali Dibadj.

Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division

I'm from Bernstein. So even with all the discussion out there outside about things you're going to do and kind of the buzzwords, I can't help but have the feeling that it's kind of a rudderless ship right now, whether it be results this quarter, whether it be obviously bribery from before, whether it be Venezuela, whether it be this Silpada thing which we were told we're going to love. It just doesn't seem like the business is being run cohesively over the past years. And to be clear, look, I think it's unfair to blame or frankly have hope in just 1 or 2 people. So let me ask my question this way. We often receive letters, anonymous or not, from current or former employees at companies suggesting things for us. And to be fair, we have difficulty verifying the veracity of these letters. But one we recently got about Avon kind of struck us. And the letter essentially posed the question as to why there's so limited internal succession planning with a possible -- obviously exception it sounds like of David in Brazil. In other words, and this may not be perfect, you've had 2 CFOs in the past 6 years both from the outside, with all due respect to Kimberly. Your line item CBU just came from the outside, and that's the second in 2 years. A new marketing head is somebody you're looking for, and again, that's from externally. You've had 5 in the past 6 years, I think, all from the outside. CIO, General Counsel, HR, IR, all from the outside recently. Of course, now you're looking for a CEO from the outside when you recruit somebody. So the question I guess, in short, is why? Why is that the case? What's the problem here and particularly in the context of this rudderless ship analogy?

Andrea Jung

Ali, I think if you look at the combination of all of the executives running both the operations, as well as the functions, most of the commercial business unit leaders and general managers who are running the business on the ground are extremely long tenured and long years of service in not only direct sales but specifically Avon. So 4 out of our 5 commercial business unit leaders have over 25 years of experience on average each in the company. So in terms of running the operations, I think we've got a very healthy balance.

Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division

In that context is to follow on a previous question. Is the restructuring headcount reduction particularly the right thing to do? I mean, you've been in restructuring for all but 3 of the past 13 years. At some point, these charges may just be the way you have to run your business and not be one-time in nature.

Andrea Jung

Yes, as I said before, I think cost is something that one needs to be continuously looking at. As businesses change you need to be changing your processes and your procedures and your structures around that. And so I think it is important that we continue to look at this. Again, I don't envision the charges that we would have to be anywhere near the size or magnitude of what you've seen in the past in Avon. But I don't think it would be prudent for us not to change our structure just because there's potentially a cost associated with it. As long as we're getting a good payback from the cost, and whether that -- and that's not always necessarily measured directly in -- this is how many dollars we save but also in efficiencies. It's measured in effectiveness, in roles and responsibilities being clear so then we can get our jobs done in a clear manner. Those are all benefits that you get from making changes in the organization. So -- and again, this isn't just about headcount. I think there are also quite a few areas in indirect spend that don't have charges associated with it, that we need to take a look at. And just so you know, I'm also very focused on some that might potentially have an accounting charge associated with it, but it might be cash flow positive if we do it going forward. So I think there are a lot of dimensions to this, and I think it would be inappropriate for us not to be looking at potential cost savings just because they might have a cost associated with them.

Operator

Your next question comes from Alice Longley.

Alice Beebe Longley - Buckingham Research Group Incorporated

Buckingham Research. I have 1 quick question and then another. You said we should not assume that margins will be up this year. Should we assume that margins might be down? And then my other question is about the increase in support and RVP in particular. It seems as though over the last few years, one of the pressures that's been constant is RVP going up as a percentage of sales. And it sounds like you have to -- with RVP and other support in SG&A, you have to give the reps more and more in terms of compensation and other support in order to drive sales, and yet it doesn't seem to be enough to drive sales. Should we expect the RVP and other reps support to go up more than sales yet again this year? And is there any sense of when enough is going to be enough?

Kimberly A. Ross

Yes, this is Kimberly. Let me first take the margin question. Look, with regards to 2012, really, the only thing we're going to say is that we're not planning for margin improvement at this time. And I'll turn the other one over to Andrea.

Andrea Jung

Yes. In terms of RVP for 2012, it is growing modestly, not ahead of sales. And on a longer-term, that evaluation of the levers of RVP that we have been spending and we look at their effectiveness, et cetera, as implied back into the model, are part of the long-range operational and financial review. So that's a big piece of the work that we're looking at.

Alice Beebe Longley - Buckingham Research Group Incorporated

And as if you're to think that you're shifting your product line to more value-oriented goods, just listening to some of your plans, it sounds as though you’re shifting down the mix in some important markets.

Andrea Jung

In some of the important markets where we still can see consumer pressure, yes, we are looking at the price tier of value and having greater flow in 2012.

Operator

Your next question comes from Linda Bolton-Weiser.

Kimberly A. Ross

Yes, a couple of things. First of all, with regards to forecasting, some of it, I think, is process improvement, so not necessarily that it needs a huge system implementation or something like that to get at it. So I think with process improvement, we can get at part of it. Some of it is changing things we do. For example, I truly believe that if we can get to market quicker, that even that would be able to impact our abilities to forecast better. So these are some of the things that we'll be looking at. Again, I've been here 10 weeks, so I have early sights on that. Some people may prove me wrong on some of that. Just with regards to the longer term, this is something that we really need to have a discussion with the new CEO coming into play, because we will have to set our priorities as to where do we want to invest for growth, as well as other investments, for example, systems. With that said, if I look at 2012, I've gone through the plan of CapEx for spending in 2012. I've seen the amounts that are expected to be spent on systems, as well as on distribution. And a lot of that stuff is stuff we're moving forward with. So I think for 2012, we have a pretty good line of sight of what we'll be spending. And it is about the same as what we've spent in 2011.

Operator

Your next question comes from Connie Maneaty.

Constance Marie Maneaty - BMO Capital Markets U.S.

BMO Capital. Could you talk about the qualities that you are looking for in a new CEO, qualities or experience? That would be great.

Andrea Jung

Just to [indiscernible] a few comments on this CEO search, I mean, it is proceeding well. The search committee consists of an independent group of our board. And obviously, this is a big priority, and they're proceeding with a sense of urgency. But they want to take the time to get the best and the right candidate for the position because this is the world's largest direct selling company and one of the world's leading Beauty companies, so we're looking for the best.

Constance Marie Maneaty - BMO Capital Markets U.S.

But nothing about the kind of qualities that would affect the way the company is run, because it's almost as though you're looking for a certain sort of leadership that can take Avon to the next level. And what would that look like?

Andrea Jung

Well, I think -- I mean, I don't want to get into the search specifics on the call. I'll just say what I said before that I think that, again, independent committee is proceeding. And we're making sure that we get the best person to take this company to the next level and return the business to the kind of sustained profitable growth that it should be delivering and it will.

Constance Marie Maneaty - BMO Capital Markets U.S.

If I can ask a follow-up on Venezuela, because there is -- in the paper, over the last couple of days, we've seen some -- those pipelines of 25% to 50%. I'm wondering if you have a sense of which of your categories is affected and if you have the price caps that will affect your categories yet and what the impact would be.

Kimberly A. Ross

Yes, this is Kimberly. I'll give you a little bit of color just on Venezuela in general. I think Venezuela continues to have many social economic and infrastructure problems that remain unsolved. A couple different areas that have impacted us, one is the fact that it's been very difficult to obtain dollars for import. And so what we've done now is change more to local sourcing in an effort to try to reduce the exposure that we had there of having to continually put more dollar liabilities into that business. With that said, we still have some significant risks there if there is a large devaluation. The other is, yes, there has been some restrictions with regards to some of the categories -- to the pricing on some of the categories. It's really not impacting us as much. It's about less than 10% of what we have at shampoo, conditioner and deodorant are kind of the main categories that are being impacted by us from a pricing perspective restriction.

Operator

Your next question comes from Javier Escalante.

Javier Escalante - Consumer Edge Research, LLC

Javier Escalante, Consumer Edge Research. I have a question and a follow-up. If you can help us do mention how much reinvestment power or flexibility the new CEO will inherit, if you will. Over the past 5, 6 years, you have extracted $1.1 billion in savings. My understanding is about $800 million of them has been reinvested. And basically, I would like to know, to what extent these monies can be redeployed or spent differently without disruption. My main concern has to do with these RVP spending, whether this has become part of the reps' compensation and therefore cannot be caught back without alienating the reps going forward. And then I have a follow-up.

Andrea Jung

This is a big part of the operational and financial review, Javier, especially as it relates to looking at the RVP, which would be the riskier places to switch it or move it, which would be the places that perhaps aren't getting us the right payback, and therefore a new CEO would be able to look at how to redeploy or reinvest there. But again, without making any decisions, all of the deep analytics are being worked on, particularly in our top markets to start and then broader. And I think this will inform a new CEO with the information and the analysis to make those kind of trade-off decisions.

Javier Escalante - Consumer Edge Research, LLC

And the other question related to the RVP again, right? You only have disclosed incremental, I think that is around $400 million roughly. But there is a much more -- a greater amount is stuck in the P&L, and I have been unable to get an answer of how much of those monies could be redeployed. So basically, it will be very important for investors that to know what is their reinvestment power to whomever takes the whole -- the helm at Avon will have. I mean, because -- I mean, what you are basically saying is that it's part of the assessment. But we will like to know, is that already compensation? And realistically, can you take that compensation away without the business sinking even further? I mean, if you -- even in this situation, you are increasing RVP spending. It seems to me that you are doing this because you want to contain the league of reps. So therefore, if you can help us understand the selling and spending, how much not only of incremental RVP that you have been disclosing for the last 4 years? But how much in there is variable enough as to know -- as for us to know whether the new CEO has any reinvestment flexibility? Because otherwise, you are basically spending this money, and we don't know whether the new CEO will be able to fix anything.

Operator

Your last question comes from Nik Modi.

Nik Modi - UBS Investment Bank, Research Division

Yes, UBS. Kimberly, can you give us any perspective? I know it's still early days, but foreign exchange has wreaked havoc in Avon's P&L through transaction over the last few years. And I think the volatility at least just given all the key political issues out there is probably going to persist. Just curious what you think in your early days if there's any solution to reduce the sensitivity to all the volatility in FX?

Kimberly A. Ross

Yes, I think that's a good question. Reducing volatility is something that I am focused on. I think a couple of things. Being an ex-Treasurer, obviously, exploring -- hedging the transaction exposure is something that we're taking a look at. The company has been doing a lot of effort with regards to changing the sourcing or also locking in rates in the contracts for sourcing, so we're looking at that again. We haven't made any final decisions, but it is definitely something that's on the radar screen, how can we try to get some of the volatility out of the business. I'm not a big fan of hedging translation, so the part that I'm really looking at is the transactional side.

Operator

Thank you. I'll now turn the conference back over to the presenters for closing remarks.

Andrea Jung

Okay. Thanks, everybody. We appreciate your time this morning. Hopefully, you have a clear understanding of how at least we're approaching 2012 in terms of operating the business with the priorities of improving the top line performance. You heard Kimberly talk about her thinking at this point on cost management opportunities and obviously the huge priority the company has on cash generation. So despite the current challenges, you've heard her say -- and again the whole organization in this interim transition period is completely focused on getting this business back on track. It is a unique company. It's got a lot of strong growth opportunities. And as I said, I look forward to continuing to offer any kind of support and my full support to the company and the new CEO. So thanks, everybody. Have a good morning.

Operator

This concludes today's conference call. You may now disconnect.

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